Major Trade Policy Shift! Canada announces the withdrawal of most retaliatory tariffs against the US.

Canadian Prime Minister Mark Carney announced on Friday that Canada will cancel retaliatory tariffs on most U.S. products that comply with the terms of the United States-Mexico-Canada Agreement (USMCA) in order to ease tensions with the White House. Starting September 1, a wide range of consumer goods from the United States that comply with USMCA rules will no longer be subject to a 25% import tariff. However, Canada will continue to impose a 25% tariff on U.S. steel, aluminum, and automotive products, which were previously subject to tariffs imposed by the Trump administration. Carney stated that this move is in preparation for the upcoming USMCA review. He emphasized at a press conference in Ottawa, "Canada and the U.S. have restored free trade for the vast majority of goods. We will continue to maintain tariffs on steel, aluminum, and automobiles and will intensively negotiate with the U.S. to resolve relevant differences." Canada is one of the few countries that swiftly took retaliatory action against U.S. protectionist measures, which caused dissatisfaction from President Trump and U.S. Commerce Secretary Lighthizer. According to sources familiar with the matter, the U.S. has repeatedly urged Canada to withdraw retaliatory tariffs during negotiations, seeing them as obstacles to broader negotiations, but the U.S. has not made any substantive concessions in the process. This policy shift occurred the day after Carney spoke with Trump on the phone. Trump welcomed the move, stating, "We're moving along on some cooperation and I hope we can be very friendly with Canada," and publicly praised Carney, saying he was "very good." Following this news, the Canadian dollar strengthened during trading hours in Toronto, with 1 USD equaling 1.382 CAD as of 2:20 pm. Canada initially imposed a 25% tariff on about $30 billion CAD ($21.7 billion USD) worth of U.S. products in March, including orange juice, wine, clothing, motorcycles, among hundreds of consumer goods. Later, in response to U.S. steel and aluminum tariffs, retaliatory measures were extended to include tools, sports equipment, and more, totaling an additional $30 billion CAD. This adjustment means that the previous tariffs will be completely revoked. Market analysts believe that this move will help alleviate price pressures and create conditions for the Bank of Canada to resume its interest rate cutting cycle. Desjardins' Macro Strategy Manager Royce Mendes pointed out, "This will reduce inflationary pressures and create room for further monetary policy easing." However, the Bank of Canada has previously emphasized that retaliatory tariffs have a limited impact on inflation. Statistics Canada data showed that the Consumer Price Index rose 1.7% in July year-over-year, below the central bank's 2% target level. According to Avery Shenfeld, Chief Economist at the Royal Bank of Canada, retaliatory tariffs have not significantly boosted Canadian inflation or stopped the Trump administration from imposing tariffs. But if removing tariffs helps secure concessions from the U.S. on Canadian goods, Canada could benefit from this. Data shows that the Canadian and U.S. economies are closely intertwined. Last year, Canada's exports to the U.S. accounted for three-quarters of its total merchandise exports, mainly in the oil and gas sector, representing about one-third of Canada's GDP. Meanwhile, U.S. exports to Canada totaled $440 billion, surpassing exports to any other country. Apart from energy products, the U.S. maintains a trade surplus with Canada overall. Carney admitted that the average tariff level on Canadian goods is currently about 5.5%, much higher than in the past. He stated, "This is no longer the free trade environment we once had, but in the game with the U.S., we must make strategic adjustments."